The Australian Securities and Investments Commission (ASIC) has accused Vanguard of making false and misleading statements to the public, in representing that all securities in the Vanguard Ethically Conscious Global Aggregate Bond Index Fund were screened against certain ESG criteria. The fund was marketed to investors who were seeking, among other things, securities with an ethically conscious screen.

Investments held by the fund were based on an index called the Bloomberg Barclays MSCI Global Aggregate SRI Exclusions Float Adjusted Index (Index). Vanguard claimed the Index excluded issuers with significant business activities in a range of industries, including those involving fossil fuels.

As at 26 February 2021, the total funds or assets under management of the Vanguard Ethically Conscious Global Aggregate Bond Index Fund was over $1 billion. 

However, ASIC is alleging that ESG research was not conducted on a significant proportion of issuers of bonds in the Index, making the ethically conscious claims misleading and violating ESG criteria for 42 issuers and 180 bonds in the Index, and at least 14 issuers and 27 bonds in the fund. Further, ASIC alleges that these bonds exposed investors to securities that had ties to fossil fuels, including those with activities linked to oil and gas exploration.

ASIC deputy chair Sarah Court said that ASIC is aware that “investors are increasingly seeking investment options that exclude certain industries, and investors need to be able to rely on investment screens to help them make these choices”.

“In this case, Vanguard promised its investors and potential investors that the product would be screened to exclude bond issuers with significant business activities in certain industries, including fossil fuels,” she explained.

“We consider that the screening and research undertaken on behalf of Vanguard was far more limited than that being promised to investors, and we consider this constitutes another example of greenwashing.”

VIEW ALL

Vanguard is alleged to have misled the public in product disclosure statements (PDS) published between 7 August 2018 to 17 February 2021, a media release issued in August 2018, in statements on its website, statements made in an interview with Finance News Network, and statements made in a presentation at a Finance News Network Fund Manager Event, both of which were recorded and published online.

The investment fund self-identified and self-reported the breach of product disclosure to ASIC in early 2021, before issuing updated PDS documents for the funds in February 2021 and then undertook “a range of measures to strengthen the end-to-end product disclosure process, including but not limited to our range of ESG offerings”.

“At the time, the description of the exclusionary screens did not provide a sufficiently detailed explanation that certain debt issuers lacking research coverage were still included in the benchmark. As a result, it is possible the portfolio held exposure to certain securities that may not have been reasonably expected by investors,” Vanguard said in a recent statement.

“The issue was self-identified and self-reported to ASIC, and as soon as the disclosure weakness was identified, Vanguard acted swiftly to inform investors and enhance the disclosure. We have fully cooperated with ASIC’s queries on the matter since it was first self-reported.

“There was never any intention to mislead, but Vanguard recognises it has not lived up to the high standards it holds itself accountable to and apologises for the concern this matter may cause for our clients.”

This news follows the ASIC announcing a crackdown on greenwashing in recent months, bringing its first court action for greenwashing in February this year and warning of more to come in March.

In late March, an ACCC complaint was lodged against Etihad Airways after the airline displayed allegedly greenwashed advertisements during a 2022 soccer match, following civil proceedings launched by ASIC against Mercer Super back in February and Future Super receiving an infringement notice from ASIC in May, after concerns were raised about a Facebook post.

Lawyers Weekly has also recently published commentary detailing how lawyers can respond to regulatory crackdowns on greenwashing and advise clients in the face of increased accountability for ESG, with one GC warning that “gone are the days where greenwashing will go unchecked”.

“ASIC will continue its focus on alleged greenwashing conduct, and we continue to stress to the financial services industry that if exclusions in investments are promised, these exclusions need to be applied and promises upheld,” Ms Court added.